Impact Fees Linked to Home Costs

Impact fees are one-time fees imposed by municipalities upon builders when houses are first built. Proponents of impact fees claim that they compensate for marginal costs, and that the fees are absorbed by developers. The first part of this paper discusses several of the legal challenges to impact fees and their implementation in the Chicago suburbs. Next, the paper proposes a simplified economic model of a segmented housing market. Primary impact fee data from eight suburban Chicago municipalities are analyzed with multiple listing service data for sales of single family houses between 1995 and 1997. Impact fees were a statistically significant component of housing prices. The paper concludes with a discussion of the fee incidence and equity issues.